The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

As the downturn proceeded, it demonstrated how interdependent oil had become with the global financial system. And nowhere was that more clearly established than in Mexico, which by 1982 had run up a huge international debt, in excess of $84 billion, on the basis of its sudden emergence as a world oil power. That year, Jesüs Silva Herzog became Mexico’s Finance Minister. His father, who bore the same name, had been head of the national commission that in 1937 had found the oil companies operating in Mexico guilty of making enormous profits and that had provided the rationale for their nationalization by President Cárdenas. Thereafter, the father had headed part of Pemex, the national oil company, until he quit over a confrontation with the oil workers union about wages. The son had taken the path of Mexico’s modern technocrats, including graduate education in economics in the United States (at Yale), then rose through the government bureaucracy until April 1982, when President López Portillo appointed him Finance Minister. To his shock, Silva Herzog realized that the country was on the edge of a grave economic crisis. It was the result of the weakening oil price, high interest rates, a severely overvalued peso, unrestrained government spending, and the drying up of markets for Mexico’s non-oil exports because of the recession in the United States. On top of everything else, there was immense capital flight. Silva Herzog recognized that Mexico was unable to service its enor...